Citi emerges from US ownership with a back-to-basics strategy

The Treasury Department sold off the last of its stake in Citigroup this week, netting a profit of $12 billion. Over the last two years, Citi has refocused on its core banking operations. The Treasury Department sold off the last of its stake in Citigroup this week, netting a profit of $12 billion. Over the last two years, Citi has refocused on its core banking operations. (Emmanuel Dunand/AFP/Getty Images)
By Pallavi Gogoi
Associated Press / December 9, 2010

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NEW YORK — For the first time in more than two years, Citigroup Inc. is no longer partly owned by the US government.

Taxpayers made out well when the Treasury Department sold off the last of its stake in the giant banking company Tuesday, netting a profit of $12 billion on the government’s investment of $45 billion.

Chief executive Vikram Pandit now has to work on pleasing his other shareholders. For Pandit, who has seen Citi through the two most tumultuous years in the company’s history, it’s time to get back to basics. Investors are keen to hear Pandit articulate a vision for one of the largest and most embattled banks in the world.

“It’s great that Citi is independent once again,’’ said Cassandra Toroian, chief investment officer at Bell Rock Capital. “But now, Pandit has to show that he can hunker down and really run this business sustainably.’’

The government’s exit will help improve morale at the bank and reel in clients who had previously avoided Citi. Also, many large investors who stayed away because of the uncertainty over what the government ownership meant are also likely to look closely at Citi stock.

Citi has focused much of its energies in the past two years cutting off parts of its businesses that don’t fit with its main banking operation. It has sold its European credit card business, brokerage operations in Japan, a 50 percent stake in the brokerage Smith Barney, and various insurance businesses for a total of $44 billion.

Today, Citi holds $421 billion in “noncore’’ assets, down sharply from $827 billion in the first quarter of 2008. Investors are happy with the way that trend is going, but they still worry that some of those assets include complex mortgage-backed investments and hard-to-value securities.

“There’s still concerns about what they have in their books,’’ said Jeffery Harte, banking analyst at brokerage firm Sandler O’Neill & Partners. “What I like is that they have identified what they will sell; they just have to keep executing.’’

Unlike other large conglomerates like JPMorgan Chase & Co. and Bank of America Corp., Citi’s banking business is global. With growth in emerging markets outpacing that in the United States, Citi looks attractive. Many investors like Citi’s reach with its 4,600 branches in 40 countries, making it the most international among the large US banks.

“No other US bank has the ability to go after international consumers like Citi,’’ Harte said.

Citi’s broad international reach has helped the bank post profits for three consecutive quarters this year and investors have cheered. Citi’s stock is up 40 percent this year, making it the best-performing stock among major US banks. Yesterday, shares rose 2 cents to $4.64.

The stock is still out of reach for many mutual funds, which have rules barring them from holding stocks trading under $5. Investors can hardly ignore Citi altogether, however since it’s one of the world’s largest financial institutions. But much of that stature has been eroded by Citi’s many missteps, such as getting into subprime mortgage investments.

Citi had been one of the 30 stocks that make up the Dow Jones industrial average but was booted out last year after its stock fell below $1 per share. Citi was one of the hardest-hit large banks during the financial crisis and was bailed out twice by the US government, first with an infusion of $25 billion and then another $20 billion.

The path back to blue-chip status won’t be an easy one. To get there, Pandit has a lot of convincing to do.

“I’d like to know what the catalyst is for an upside at Citi,’’ said William Smith, chief executive of Smith Asset Management, one of Citi’s most vocal critics.